Internal Liquidity Risk in REIT Excess Returns

32 Pages Posted: 19 Aug 2009 Last revised: 17 Nov 2009

See all articles by Tsung-Kang Chen

Tsung-Kang Chen

National Chiao Tung University

Hsien-Hsing Liao

National Taiwan University

Ahyee Lee

Fu-Jen Catholic University

Chia-Wu Lu

Providence University (Taiwan)

Date Written: August 18, 2009

Abstract

Because REITs distribute most taxable income to shareholders, internal liquidity is important for REIT investment decisions. We employ American REIT data to investigate the effects of internal liquidity risk on REIT excess returns. Our firm-level results show that internal liquidity risk positively relates to REIT excess returns when controlling for variables possibly affecting REIT returns. Besides, our results show that internal liquidity risk effects are stronger for REITs with smaller size and higher leverage ratio. We also find that an industry-wide internal liquidity risk state variable materially explains aggregated REIT excess returns when controlling for bond and equity market risk factors and other major state variables. We conclude that internal liquidity risk should be incorporated into REIT pricing.

Keywords: Internal Liquidity risk, REIT excess returns, Internal Liquidity State Variable

JEL Classification: G12

Suggested Citation

Chen, Tsung-Kang and Liao, Hsien-Hsing and Lee, Ahyee and Lu, Chia-Wu, Internal Liquidity Risk in REIT Excess Returns (August 18, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1457511 or http://dx.doi.org/10.2139/ssrn.1457511

Tsung-Kang Chen

National Chiao Tung University ( email )

No. 1001, Dasyue Rd., East Dist.,
Hsinchu City, 300
Taiwan

Hsien-Hsing Liao (Contact Author)

National Taiwan University ( email )

1 Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Ahyee Lee

Fu-Jen Catholic University ( email )

510, Zhongzheng Rd.
Xinzhuang Dist.
New Taipei County
Taiwan

Chia-Wu Lu

Providence University (Taiwan) ( email )

200 Chung Chi Rd.
Taichung, 43301
Taiwan

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